Thailand’s legal tender and stabbed it with a chicken-satay skewer. They hit it so hard, it thought it was a Mexican peso. They tore it into little pieces, wadded them up, and started a huge spitball fight on the Bangkok stock exchange that caused all of Thailand’s stocks to go running home to Mother. What the traders really did to the baht was sell it. Investors in international currency markets started looking at Thailand’s economy. Maybe the world had as many calculators, stereos, and VCRs as it wanted. But the Thais were borrowing money overseas to produce more—borrowing so much money that Thailand had a balance of payment deficit even though it was exporting everything. Some of those smart government policies turned out to include, “You’d better loan money to a certain general’s son if you’re smart.” Thais couldn’t buy calculators, stereos, and VCRs—they’d all been exported—so Thais bought overpriced real estate and cockeyed stock issues. Thailand had risky debt, bad debt, and worse equities. Maybe owning baht wasn’t such a good idea. Currency traders sold baht. The government of Thailand bought baht, using the foreign currency it had from exporting calculators, stereos, and VCRs. Thailand did this to keep the baht from being “devalued.” Devaluation simply means admitting that your currency is worth less compared with other currencies, but no government likes to do it. When a currency is devalued, imported raw materials—stereo ore and barrels of unrefined calculator numbers —become more expensive. Inflation rises. Foreign investments—VCR farms— lose value. Stock prices fall. Everything goes in the toilet. The whole 1970s experience in America was essentially the story of the dollar being devalued. We can’t blame the Thais for wanting to avoid a situation that could lead to disco and Jimmy Carter. Anyway, currency traders were glad to sell baht, so they sold some more. Aggressive currency traders even sold baht they didn’t own. They borrowed baht to sell, hoping to repay the loan later with cheaper baht. (This is called selling short. You can do it with stocks or, for that matter, with the car you borrowed from your neighbors, if you think you can pick up the same Saab for less before they get back from the Bahamas.) Traders figured that eventually the Thai government would run out of foreign currency. The Thai government ran out of foreign currency. Everything went in the toilet. When the currency traders were done with Thailand, they started looking at other economies in Asia. Maybe owning Indonesian rupiah, Malaysian ringgit, and South Korean won wasn’t such a good idea, either. Malaysian prime
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